Shandong Shuangyi Technology (SZSE:300690) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Shandong Shuangyi Technology (SZSE:300690) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Shandong Shuangyi Technology:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.074 = CN¥105m ÷ (CN¥1.7b - CN¥296m) (Based on the trailing twelve months to September 2023).

Therefore, Shandong Shuangyi Technology has an ROCE of 7.4%. On its own that's a low return, but compared to the average of 6.0% generated by the Machinery industry, it's much better.

See our latest analysis for Shandong Shuangyi Technology

In the above chart we have measured Shandong Shuangyi Technology's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Shandong Shuangyi Technology .

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Shandong Shuangyi Technology. Over the past five years, ROCE has remained relatively flat at around 7.4% and the business has deployed 52% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Shandong Shuangyi Technology's ROCE

As we've seen above, Shandong Shuangyi Technology's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 84% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Shandong Shuangyi Technology, we've discovered 1 warning sign that you should be aware of.

While Shandong Shuangyi Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.